Stablecoins and Stock Tokenization: Opportunities and Challenges in Reshaping the Global Crypto Landscape

This article is compiled from the Space AMA "Discussing Stablecoins and Stock Tokenization: Development Prospects and Compliance Challenges" hosted by Odaily Planet Daily and co-hosted by OKX Chinese. The attendees included: William: FinTax COO; Kiwi: OKX Ventures Reasearch; Zixi: CEO of Stablestock; Yue Xiaoyu: Web3 Product Manager

1. Competition and Regulation in the Stablecoin Sector

1.1 Stablecoins: Growing Together in the Regulatory Game

In recent years, the stablecoin sector has experienced rapid growth, and market attention continues to increase. The industry is highly concerned about whether the stablecoin market has entered an "arms race" and which market segments will emerge as winners. In terms of market size, the global stablecoin market capitalization is approximately US$260 billion, of which non-US dollar stablecoins account for only approximately US$2 billion. Despite the relatively small scale of non-US dollar stablecoins, competition among them has quietly emerged globally. Several countries and regions have introduced or are in the process of formulating relevant laws and regulations, such as the European Central Bank's MiCA (Markets in Crypto Assets Regulation Bill), which was issued in mid-2023, and the recently implemented Stablecoins Ordinance in Hong Kong. Both regulations are defensive in nature, emphasizing the prevention of financial risks in response to the continued expansion of US dollar stablecoins such as USDT and USDC, reflecting the importance that global regulators attach to the development of stablecoins. However, from a regulatory perspective, the stablecoin market is still in its early stages, and the relationship between various stablecoins is more inclined towards synergistic growth rather than a zero-sum game. Regarding specific regulatory systems, freezing mechanisms and blacklist management in different jurisdictions are key factors influencing the future of stablecoins. Currently, stablecoins are primarily used for crypto asset purchases and large-scale transactions in the "gray" or "off-white" sectors. The balance between freezing standards within each country's regulatory framework directly determines the viability of stablecoins. Stablecoins should fully leverage their functions as a medium of exchange and unit of value, particularly in areas such as cross-border payments, leveraging their advantages of high freedom and ease of transaction. If stablecoins can be traded against Bitcoin or specific physical commodities, this will foster greater real-world demand and give them a competitive advantage. Conversely, overly stringent regulations could limit their application scenarios and weaken their competitiveness. Therefore, regulators need to clearly define the scope of funds that can be frozen and establish a framework to ensure the free flow of compliant funds within existing scenarios. This is not only a regulatory challenge but also a key factor in determining which stablecoins will succeed under regulatory conditions. Stablecoin licensing/permitting systems are also crucial. The US GENIUS Act stipulates that only institutions qualified as "Payment Stablecoin Issuers (PPSIs)" may issue stablecoins, and these must be approved through federal or state regulatory pathways. Stablecoins must be fully backed 1:1 by high-quality liquid assets (such as US dollars or US Treasuries), and reserves must be disclosed and subject to regular audits. The EU's MiCA categorizes stablecoins as either single-fiat currency-backed or multi-asset-backed. It explicitly requires that fiat stablecoins must be 1:1 backed by reserves and prohibits the issuance of algorithmic stablecoins. Furthermore, all issuers must obtain authorization from member state regulators and, upon approval, can operate throughout the EU. Singapore has established a flexible and innovation-oriented system through the Payment Services Act (PSA) and its subsequent stablecoin framework. This regulation requires that non-bank-issued stablecoins with a volume exceeding 5 million Singapore dollars must apply for a "Major Payment Institution" (MPI) license to operate; issuers below this threshold are temporarily exempt. Banks issuing stablecoins do not need to apply for a separate license, but they must adhere to the same reserve and compliance requirements. In Hong Kong, the regulatory framework for stablecoins is more stringent than in the US and Singapore, with higher issuance thresholds and know-your-customer (KYC) requirements. This may make it difficult for Hong Kong dollar stablecoins to integrate into the DeFi ecosystem, limiting their use in traditional cryptocurrency speculation and gray market transactions. Therefore, stablecoin issuance in Hong Kong requires deep integration with businesses with native payment methods. Stablecoin licenses are expected to be prioritized for businesses with native payment methods, such as e-commerce platforms. 1.2 US Dollar Stablecoins: Dominance and Future Challenges Within the stablecoin market, US dollar stablecoins, leveraging the dollar's long-standing dominance and first-mover advantage, have become a core pillar of the global crypto-financial system. For residents of many countries and regions, obtaining US dollars is challenging and costly, especially in areas with underdeveloped financial infrastructure or strict foreign exchange controls. The emergence of US dollar stablecoins has significantly lowered this barrier. Users can obtain a digital equivalent pegged 1:1 to the US dollar with only internet access, significantly simplifying cross-border payments and trade processes and bringing unprecedented convenience to global commerce. This convenience not only promotes the efficiency of international trade but also provides a significant boost to financial inclusion, especially in regions underserved by traditional financial services. From a market perspective, the stablecoin market can be likened to an iceberg: Above the surface lie compliant dollar-denominated stablecoins, represented by USDC, which, thanks to their transparent reserve mechanisms and strict regulatory compliance, hold a significant market share. Beneath the surface lie a vast number of flexible, non-compliant offshore stablecoins, such as USDT, whose wide range of applications and low barriers to entry have made them globally popular. Despite this, countries are actively launching localized stablecoins based on local regulatory policies, optimizing them for specific scenarios and regional markets. For example, some companies are exploring deep integration of stablecoins with e-commerce or payment ecosystems to increase penetration in niche markets. However, while these localization initiatives can enhance the applicability of stablecoins in specific sectors, the global dominance of dollar-denominated stablecoins, driven by the dollar's unique status as a global reserve currency and its widespread acceptance in cross-border transactions and as a store of value, is likely to remain unchallenged for the foreseeable future. This dominance stems not only from the dollar's monetary credit but also from the combined advantages of dollar-denominated stablecoins in technological scalability, ecosystem compatibility, and market liquidity. 1.3 Emerging Stablecoins: Wealth Effect and Competitive Advantage Beyond the US dollar and non-US dollar stablecoin categories, two other stablecoin categories possess significant growth potential and will play a significant role in the global crypto-financial market. While regulations in many countries prohibit stablecoins from paying interest to holders to avoid direct competition with traditional bank deposits, there remains room for the development of "yield-generating stablecoins" within the regulatory gray area of DeFi and Web3. These stablecoins, through deep integration with decentralized finance (DeFi) or centralized finance (CeFi) platforms, can provide users with stable and secure interest returns, making them highly attractive to institutional investors and large funds. Currently, a variety of yield-generating stablecoins employing neutral strategies have emerged in the market, striking a balance between compliance and returns through innovative mechanisms, injecting new vitality into the market. On the other hand, scenario-specific stablecoins issued by Web2 giants, leveraging their mature payment and business ecosystems, can effectively reach user groups that are difficult to reach with dollar-denominated stablecoins. By deeply cultivating specific application scenarios, such as e-commerce, payment, or social platforms, these stablecoins can significantly increase market liquidity, strengthen user stickiness, and provide customized solutions for regions with underdeveloped financial services. In particular, in the cross-border e-commerce sector, stablecoins are gradually challenging the position of traditional third-party payment platforms, demonstrating a unique competitive advantage. In developed markets, due to fierce competition, payment projects generally attract users by offering low transaction fees, resulting in a relatively stable market landscape. However, in emerging markets such as Latin America, constrained by higher payment fees and insufficient financial infrastructure, stablecoins have greater room for development. For example, in Mexico and Brazil, the market share of stablecoins has declined due to the continued improvement of their banking system. In Brazil, due to volatile exchange rates and a relatively underdeveloped banking system, stablecoins are in strong demand, with transaction fees reaching around 1%, offering a cost advantage over traditional payment methods. Traditional Web2 companies are more cautious about compliance and tend to strictly adhere to regulatory requirements, while US dollar stablecoin projects have advantages in terms of flexibility and ubiquity in payment scenarios. 2. Opportunities and Challenges of Stock Tokenization 2.1 From Off-Chain to On-Chain: The Liberating of Liquidity Stock tokenization, a new hot topic in RWA, is profoundly reshaping the intersection of traditional finance and crypto finance. By converting physical stocks into digital tokens on the blockchain, stock tokenization is redefining asset management and trading mechanisms with an innovative model. Its core value lies in bringing the liquidity of off-chain assets onto the blockchain, effectively alleviating liquidity bottlenecks in the traditional stock market caused by trading time restrictions, geographical barriers, and complex clearing processes. From a broader perspective, current innovation in the blockchain field is focused on improving on-chain liquidity. Stablecoins provide a stable value anchor for the on-chain economy by introducing US dollar liquidity, while stock tokenization provides an efficient solution to the liquidity pain points of off-chain stocks. Together, they have built a diverse on-chain and off-chain liquidity framework, significantly improving asset liquidity and accessibility, promoting the deep integration of traditional finance and decentralized finance (DeFi), and injecting new momentum into the modernization of the global financial system. 2.2 Leading a New Narrative: Optimism and Caution Whether stock tokenization can become the core narrative of the next round of market prosperity is attracting much attention, and this is closely related to both market enthusiasm and regulatory trends. In fact, there were early attempts at this in 2018: some platforms allowed retail investors to purchase stocks through on-chain proxy holding, with brokerage firms holding the actual shares. While this model seemingly connects blockchain with the traditional securities market, its core legal attributes remain unchanged. As the SEC has pointed out, packaging securities as tokens does not change their security status. Furthermore, due to differences in trading hours and participant demographics compared to traditional markets, on-chain markets suffer from low liquidity and frequent price fluctuations, with prices sometimes exceeding 300% compared to actual stocks. Inconsistent regulation across jurisdictions also makes it difficult for investors to protect their rights when platforms encounter risks or collapse. These factors have collectively led to the gradual demise of this model. Security Token Offerings (STOs) are considered a "compliant upgrade" to ICOs, aiming to issue on-chain securities assets in compliance with securities regulations. However, the high compliance costs of STOs are a major obstacle. The extensive KYC/AML reviews, ongoing information disclosure, and legal compliance costs involved in STOs have deterred project developers. Even if successfully issued, most STO tokens are unable to enter mainstream exchanges and are instead traded on smaller platforms or in the OTC market, resulting in extremely limited secondary market liquidity. Furthermore, investor confidence in the unfamiliar token structure and uncertain return expectations has led to subdued market sentiment. Cross-border regulatory and tax differences further complicate internationalization. Ultimately, while STOs retain their "compliant" reputation, they have failed to achieve large-scale market adoption. Ultimately, these attempts failed to become a market force and enhance competitiveness in the stock tokenization sector. However, stock tokenization still faces numerous challenges. First, when users purchase tokenized shares, they may question whether they truly correspond to the underlying shares. Second, without a continuous influx of new assets, on-chain liquidity is difficult to maintain, and asset inflow and outflow mechanisms remain fraught with obstacles. To address these two issues, the industry is actively exploring solutions. Some projects have adopted "Proof of Reserve" mechanisms, which establish a capital pool and regularly disclose reserve status to ensure that on-chain transactions are 1:1 linked to actual shares, thereby enhancing the authenticity and liquidity of assets. However, user concerns about the authenticity of tokenized shares remain, and liquidity is highly dependent on the operational capabilities of the project, which also poses certain risks. Third, and more importantly, tokenized shares currently lack the full equity attributes of traditional stocks, such as voting rights and dividend rights, limiting their appeal as a genuine equity alternative. Fourth, regulatory differences also hinder further development in the stock tokenization sector. Tokenized stocks, when traded globally, face complex regulatory frameworks and tax policies across diverse jurisdictions. In particular, significant tax variations exist across countries, and tax revenue is closely tied to investor returns, directly and profoundly impacting investment behavior. Currently, returns from tokenized stocks may be subject to tax regulations across diverse jurisdictions, making understanding and application of these regulations challenging. Furthermore, the high composability of tokenized stocks presents additional tax accounting challenges, necessitating the use of specialized software tools. For example, two tokens can form a decentralized trading pair, generating on-chain transaction fee income. In the future, two stock tokens may also form trading pairs, generating fee income. Calculating liquidity provider (LP) income and addressing missing dividend deductions for token holders will require regulators to develop matching rules based on this new technology. This presents a significant challenge, requiring more Web3 industry players to assist regulators in fostering the development of sound regulatory rules. 3. Conclusion Stablecoins and stock tokenization are profoundly reshaping the global financial landscape. This transformation stems from technological innovation and is also promoting the deep integration of crypto-finance with traditional financial systems. Stablecoins promote financial inclusion and efficiency by injecting on-chain liquidity and optimizing payment scenarios. Furthermore, stock tokenization breaks through liquidity bottlenecks in traditional markets, bringing off-chain assets onto the blockchain, expanding accessibility. Together with stablecoins, it builds a diversified liquidity framework, promoting the coordinated development of DeFi and traditional finance. However, these opportunities are also accompanied by numerous challenges. For example, freezing mechanisms, licensing systems, and blacklist management directly impact the survival and competitiveness of stablecoins. Legislative developments in various countries also reflect their vigilance against the expansion of US dollar-denominated stablecoins. Furthermore, stock tokenization faces issues such as authenticity doubts, incomplete rights and interests, and tax complexity. High compliance costs and cross-border regulatory differences further hinder its large-scale application. The fields of stablecoins and stock tokenization have an undeniably bright future, but whether they can truly lead a new round of encryption narratives remains to be seen.